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Indie Studio's New Releases to Stream on Netflix Before Cable

Netflix has just signed a deal with Relativity Media to bring major theatrical releases exclusively to Netflix subscribers during the first-run window usually relegated to premium cable channels like HBO or Showtime. This is a big win for Netflix and its Watch Instantly service, as it positions it as an even stronger competitor to traditional and premium cable.

Relativity Media is an independent film studio that often co-finances films with Universal Pictures, Lionsgate and Columbia Pictures. Some of its more recent productions or co-productions include Zombieland, Brothers and MacGruber.

The first pictures that will be covered under the deal include The Fighter and Skyline. The Fighter stars Christian Bale, Mark Wahlberg and Amy Adams and is set for a December theatrical release. Skyline is also expected to be released in theaters this year. Both films should be available on Netflix in early 2011.

The Sordid Saga of Licensing Movies for Online Streaming

If you aren't familiar with some of the inner workings of the film industry, here's a basic primer of the current system. After a film is released in theaters, it is then released on DVD/Blu-ray and depending on the studio and the viewing window, to Pay-Per View, Redbox or Video-on-Demand. After the new-release window ends, bigger films go into what is called the first-run window, where they are then available on a premium cable channel like HBO, Showtime, Starz, etc. After this window, films are then dribbled down to basic cable, network television and so on.

Although Netflix's Watch Instantly library is growing all of the time, one area where it really falls short is in new releases. This is not the case with Netflix's DVD and Blu-ray rental-by-mail service, however. Netflix has a vast catalog of Watch Instantly films, but most of them are older releases and the most up-to-date content is usually by way of television, which is easier to license for more recent viewing.

The big exception in this area has been with Starz. Netflix was able to procure a deal with Starz to get movies (or Starz original broadcasts) as soon as they come to Starz subscribers. While Starz doesn't have the first-run deals of the largest premium cablers like HBO, it does have some exclusive deals with Disney/Pixar and with a lot of Sony films.

Because Starz retained ownership of how it licensed its content digitally (that is, over the Internet), the company was then able to license that content to Netflix, giving Netflix access to its first-run content. It was a brilliant run around the system. Unfortunately, it also made the major studios pretty unhappy.

The current Starz deal expires in 2012 and it won't be the same in the future. Instead, studios are now building more digital licensing agreements into their contracts with the premium cable outlets to avoid a Netflix-Starz scenario from happening again.

The only recourse for Netflix is to make deals directly with the studios, which is exactly what is happening with Relativity Media.

Death to Cable?

Netflix signing a first-run exclusivity agreement with a mid-sized studio like Relativity Media is a big deal. It's a sign that Netflix's subscriber base of more than 13 million members is worth catering to. It's also a sign that, at least for some studios, eschewing the traditional system and going straight to a digital service operator — rather than a premium cabler — might be worth experimenting with.

As more consumer electronics devices either offering or coming with built-in support for Netflix, this avenue could become even more attractive to studios as time moves forward.

Yet it's important to put things in perspective. HBO has more than 40 million subscribers in the U.S. alone, its international offerings are much more robust than Netflix's and it has long-standing first-run deals with many of the major studios. Likewise, both Showtime and Starz have more subscribers than Netflix.

However, Netflix offers something that the other outlets don't: convenience. While premium content from networks like HBO are available online via different cable operators, these systems vary from cable company to cable company. Additionally, Netflix is now on the iPad and will soon be on the iPhone.

Sign of the Future

Even if the Netflix/Relativity Media deal ultimately has little impact on what films are available to Watch Instantly on Netflix, this is a sign that the industry is finally willing to look past the traditional cable company/premium channel paradigm and embrace digital distribution and subscription services.

If nothing else, this is a sign that the cable industry needs to step it up and start embracing digital distribution and online streaming. Customers may still cancel cable, opting instead of things like Hulu Plus and Netflix Watch Instantly, but an easy way to avoid some of that churn would be to make it easy to access content from the couch, the computer and on the go.

The studios are willing to bypass the system and take things directly to digital delivery. Will the rest of the industry follow suit?

What do you think about the Netflix deal and what it means for the future of digital distribution for first-run feature films?

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